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1 1. On 1 January 2009, Engineer Mr Abhay purchased 1 Machinery from Hemakshi on hire purchase system over a period of three years. Rs. 5,000 per machinery was payable on delivery on 1 January 2009 and the balance by following instalments ( per machinery) on 31 December in each year : , , Balance amount Hemakshi charged interest at 10% on the yearly balances. The cash value of the one machinery on delivery was Rs. 30, % p.a. on diminishing balances was written off in each year. Abhay paid all the instalments on the due date. Show the Machinery Account and Hemkashi Account in the books of Abhay for three years to 31 December 2009 and also prepare Abhay account in the books of Hemakshi.(Ans ) 2. On 1 January, 1997, Mr. Saxena bought a Refrigerator from Shyam and Co. on the instalment system. The cash price of the Refrigerator was Rs. 7,450 and the payment was to be made as follows : (1) Rs. 2,000 on signing the agreement. (2) Balance in three instalments of Rs. 2,000 each at the end of each year. 5% interest is charged by the suppliers per annum. The purchaser writes off 10% depreciation annually on the diminishing balance of the cash value. Make entries in the books of both the parties. LEVEL-1-HOME EXERCISE 3. From the following, calculate the cash price of the asset :Rs. Hire purchase price of the asset -50,000,Down payment -10,000,Four annual instalments at the end of each year 10,000.Rate of Interest 5% p.a.(ipcc M-2010) (Ans-45459) 4. On 1 January 2007, Vikram purchased a printing machine on hire purchase system from Modern Machinery Company. The payment was to be made as Rs. 30,000 down and balance in three equal annual instalments of Rs. 20,000 each payable on 31 December. The vendor company charged 8% p.a. The cash down value of machine was Rs. 81,543. Calculate the interest on three instalments.(ans -4123,2853,1481) 5. Shyam purchases a T.V. Set on hire purchase basis for Rs. 5,000 and makes the payment in the following order : NTM Down payment 1,000 1st instalment after one year of the agreement 2,000 2nd instalment after two years of the agreement 1,000 3rd instalment after three years of the agreement 1,000 The Cash Price of the T.V. Set 4,400 Pankaj Goel Page 1

2 Calculate the interest on instalments(600 in 4:2:1) 6. 'X' purchased 7 trucks on hire purchase on The cash purchase price of each truck was Rs. 50,000. He was to pay 20% of the cash purchase price at the time of delivery and the balance in 5 half-yearly instalments starting from with 5% per annum. On X s failure to pay the instalment due on , it was agreed that X would return 3 trucks to the vendor and remaining 4 would be retained by him. The vendor agreed to allow him a credit for the amount paid against these 3 trucks less 25%. Show the relevant accounts in the books of 'X' assuming that his books are closed in June every year and 20% is charged on trucks.(ans: 1,60,000, Amount credited in respect of three trucks returned-40,500) 7. On 1 January 1998, Yukti purchased from Nikita a plant valued at Rs. 2,50,000; payment to be made by four bi-annual instalments of Rs. 70,000 each; interest being charged at 5% per half year. Yukti paid the first instalment on 1 July 1998 but failed to pay the next. Nikita repossessed the plant on 4 January On 5 January 1999, after negotiation, Yukti was allowed to retain the plant of which the original cash price was Rs. 1,30,000 and she was to bear the loss on the remainder which was sold on that date for 1,25,000; Nikita waiving the interest after 31 December Another agreement was signed for payment of the balance amount. Show by ledger accounts the necessary records in the books of Yukti charging depreciation at 10% per annum half yearly on the written down value.(ans: VALUE OF PLANT RETAINED-1,17,325) 8. Delhi Television House sells goods both on cash and hire-purchase basis and records hirepurchase transactions on Stock and Debtors system, and closes its books on December 31, every year. On , it sold to Rajan a colour TV set and VCR; the other particulars are as follows : Item TV Set VCR Cost Price Rs. 9,000 Rs. 16,000 Down Payment Rs. 2,000 Rs. 4,000 No. of Instalments Payable 10 8 Amount in Each Instalment Rs. 1,000 Rs. 2,000 Mode of Payment Monthly Bi-Monthly First Instalment Due on Rajan paid all the instalments due except for those due on December 1, It was decided that Television House will take back VCR at an agreed price of Rs. 11,000 and excess amount, if any, will be adjusted against the instalment due on TV set. VCR repossessed was sold for Rs. 12,000 after repair; charges for which amounted to Rs. 500 only. Prepare necessary ledger accounts to record the above transactions and find out the profits.(ans-profit-6500) 9. Rishabh point sells computers on Hire-purchase basis at cost plus 25%. Terms of sale are Rs.5,000 down payment and eight monthly instalments of Rs.2,500 for each computer. NTM The following transactions took place during the financial year : Pankaj Goel Page 2

3 Number of instalments not yet due as on = 25 Number of instalments due but not collected as on = 5 During the financial year 240 computers were sold. Out of the above sold computers during the year the outstanding position were as follows as on : Instalments not yet due: (i) Eight instalments on 50 computers.(ii) Six instalments on 30 computers.(iii) Two instalments on 10 computers. Instalments due but not collected: Two instalments on 5 computers during the year. Two computers on which five instalments were due and two instalments not yet due were repossessed out of sales effected during current year. Repossessed stock is valued at 50% of cost. All instalments have been received. You are asked to prepare Hire- Purchase Trading Account for the year ending on (Ans-8,97,500(RTP- IPCCNov 09) 10. On 1 April, 2007, Singh acquired a truck from a dealer on hire-purchase basis, cash price of which was Rs. 8,00,000. The terms of payment being : Rs. 2,00,000 cash down; Rs. 2,45,000 at the end of the first year; Rs. 2,30,000 at the end of the second year; and Rs. 2,15,000 at the end of the third year. The dealer charged 7½% per annum.singh depreciated the truck at 10% per annum on written down value method. After having made the down payment and having paid the first instalment on 31 March 2008, he could not pay the second instalment on 31 March The hire-vendor took possession of the truck and after spending Rs. 20,000 on repairs of the truck, sold it away for Rs. 4,57,500.Prepare the ledger accounts in the books of both the parties. (Ans:Loss and Profit-7500) 11. On 1 October, 2006, five trucks were purchased by Kartar on the hire purchase system. The cash price of each truck was Rs. 5,50,000. The payment was to be made as follows: 10% of cash price at the time of delivery. 25% of cash price at the end of each one of the subsequent four half-years. The payment due on 30 September, 2007 could not be made and, hence, trucks were seized by the hire vendor but after negotiations, Kartar was allowed to keep three trucks on the condition that the value of the other two trucks would be adjusted against the amount due, the trucks being valued at cost less 25% depreciation and Kartar would pay the balance in five half-yearly instalments together with interest. Both the parties close their books of account on 31 March every year. Kartar charges 15% depreciation on trucks on the original cost. In October, 2007, the hire vendor spent Rs. 60,000 on getting the seized trucks thoroughly overhauled and sold them for Rs. 9,50,000. Prepare for two accounting years ended 31 March, 2008 : (i) Trucks account in Kartar s ledger assuming that Kartar debited it with full cash price in the beginning of the contract; and(value of Truck ) Pankaj Goel Page 3

4 (ii) The personal account of Kartar and goods repossessed account in hire vendor s ledger. 12. Goods amounting to Rs. 1,55,997 at H.P. Price were sold on hire purchase system. The hire vendor normally sells goods at retail price showing a gross profit of 30% on that price. But when goods are sold on hire purchase, he adds 5% to retail price to cover additional risk. During the year, goods costing Rs. 10,500 were repossessed for non-receipt of any payment on them. These goods were valued at cost on 31 March,2010. Cash received from customers amounted to Rs. 63,000. Prepare hire purchases trading account for the year ending 31 March (Stock at HPP-77247,Profit-21000) 13. The hire purchases department of Garvita Ltd provides you the following information for the year ending on 30th September 2008 (NTM) Purchase cost per unit Rs 3,000 Cash sales price per unit Rs 4,000 Cash down payment per unit Rs 400 Monthly payment per unit Rs 350 Number of instalments per unit 12 Number of units sold on hire purchase basis 120 Number of instalments collected 420 Number of instalments due but not yet collected 58 Calculate the following : (a) Number of instalments fallen due during the year, (b) Number of instalments not yet due on , (c) Amount of instalment not yet due, (d) Amount of installment due but not yet collected, (e) Amount fallen due during the year, (f) Cash collected during the year, (g) Hire Purchase price per unit, (h) Total hire purchase price of units sold, (i) Total cost price of units sold on hire purchase, (j) % of profit margin on H.P. Sales, (k) Profit included in total hire purchases price, (l) Profit included in the amount of instalments not yet due, (m) Gross Profit. Also Prepare Hire Purchase Stock Account, Hire Purchases Debtors Account and Hire Purchase Adjustment Account.(ICWA) 14. Nakul Ltd. sells goods on Hire-purchase by adding 50% above cost. From the following particulars, prepare Hire-purchase Trading Account to reveal the profit for the year ended : Instalments due but not collected 10, Stock at shop (at cost) 36, Instalment not yet due 18, Stock at shop 40, Instalment due but not collected 18,000 Other details : Pankaj Goel Page 4

5 Total instalments became due 1,32,000 Goods purchased 1,20,000 Cash received from customers 1,21,000 Goods on which due instalments could not be collected were repossessed and valued at 30% below original cost. The vendor spent Rs. 500 on getting goods overhauled and then sold for Rs. 2,800. [PE II) May 2005] 15. Shagun Brothers have a hire purchase department which sells goods at cost plus 50%. From the following information, you are required to ascertain the profit made for the year ended 30 September 2009 using stock and debtors method Rs. Stock on hire with customers at selling price (unmatured)as on 30 September ,000 Stock at shop (at cost) as on 30 September ,000 Instalments due on 30 September ,000 Cash received from customers 1,80,000 Goods repossessed (instalments due Rs. 6,000) 1,500 Instalments due from paying customers 27,000 Closing stock at shop (including repossessed goods) 61,500 Purchases made in the year 1,80,000 (Ans:HP Stock and GP ) 16. Sound Co. records transactions relating to its hire purchase business on Stock-Debtors system. It sold to Rasheed a tape recorder for which Rasheed was required to pay in all Rs. 1,200 in the form of 12 monthly instalments of Rs. 100 each. Rasheed paid four instalments in time but thereafter stopped paying instalments. Sound Co. after the seventh instalment had also become due (but before the eighth instalment had fallen due) repossessed the tape recorder. The company valued the repossessed tape recorder at Rs In the books of the company, pass a journal entry to record the effect to repossession of tape recorder from Rasheed. 17. Neeta Limited commenced business on April 1, The business is to sell VCPs and VCRs both for cash and on hire purchase bases. Information about terms is given below :NTM Rs. Rs. VCPs VCRs Cash Price 10,000 30,000 Cost 8,000 24,000 Cash down for Hire Purchase 2,000 6,000 Monthly Instalment 1,000 3,000 Number of Instalments Pankaj Goel Page 5

6 The company purchased goods costing Rs. 1,00,00,000 in all and made cash sales totalling Rs. 86,00,000. Stock in hand on 31 March 2009 was valued at Rs. 12,00,000. Hire-purchase transactions were as follows : Number Instalments Instalments Due sold collected (customers paying) VCPs VCRs VCPs and 2 VCRs on which only 4 installments were collected were repossessed and were valued at Rs. 32,000. This is not included in the figure of stock mentioned above. Prepare accounts showing the profit or loss made by the company by adopting Stock and Debtors system. (CA- Module) 18. Deepak Ltd. has a hire purchase department. Goods are sold on hire purchase at cost + 40%. From the information given below, prepare Hire Purchase Trading Account in the books of Deepak Ltd. Rs. 1 July 2008 Goods out on Hire Purchase (at H.P. Price) 21,000 During the year ended 30 June 2009 Goods Sold on Hire Purchase (at H.P. Price) 1,05,000 Cash Received 70,000 Goods received back valued at 800 (H.P. instalment unpaid Rs. 2,800) Goods with Hire Purchase Customers(at Hire Purchase Price) 45,500(Ans: (Instalment Due-7700) 19. Varun sells goods on hire purchase basis also. He fixes hire purchase price by adding 50% to the cost of the goods to him. The following are the figures relating to his hire purchase business for the year 2009 Balance on H.P. Stock Account as on 1 January ,000 Balance of H.P. Debtors Account as on 1 January Selling price of goods sold on hire purchase basis during the year 90,600 Cash received from customers during the year 92,400 Total amount of instalments that fell due during ,700 One customer to whom goods had been sold for Rs. 1,200 paid only three instalments of Rs. 100 each. On his failure to pay the monthly instalment of Rs. 100 due on 4 December, 2009 the goods were Pankaj Goel Page 6

7 repossessed on 27 December 2009 after due legal notice. Calculate the profit by Stock and Debtors System(Ans: (Profit-31167)) 20. The hire purchase department of New Appliances Ltd. sells television sets and room coolers. This department was started in The relevant information for the year ended 31 December 2009 is as follows :NTM-CA Module Television Room Cooler Cost Rs. 5,400 Rs. 2,000 Cash price Rs. 6,300 Rs. 2,400 Cash down payment Rs. 900 Rs. 400 Monthly instalment Rs. 600 Rs. 200 Number of instalments During the year, 200 television sets and 240 room coolers were sold on hire purchase basis. Four television sets on which 3 instalments only could be collected and 8 room coolers on which 5 instalments had been collected were repossessed. These were valued at Rs. 20,000; after reconditioning at a cost of Rs. 2,000, they were sold outright for Rs. 28,000. Other instalments collected and those due (customers still paying) were respectively as follows : (Ans:Profit ) Television Sets 540 and 40 Room Coolers 800 and 60 Pankaj Goel Page 7

Hire Purchase and Instalment Sale Transactions

11 Hire Purchase and Instalment Sale Transactions Learning Objectives After studying this chapter, you will be able to: Understand the salient features and nature of Hire purchase transactions. Journalise